Smart Shift

The web's 'next wave'

In early 2008, Daniel Carroll reviewed his parents' investment returns and got upset, he says. "They were mostly in mutual funds that were worse than the market," he says. The problem, he decided, was the lack of screening of fund managers for people such as his parents, who have money to invest but do not attract the attention of top brokers at larger institutions. Carroll, a 29-year-old former bond trader, created a site to help consumers do better. Wealthfront, unveiled in October 2009, connects people with money managers selected for their performance.

Carroll's site is one of a slew of new, online financial-services and advice companies that have pop up in recent years. The founders of Wealthfront and an additional startup, LearnVest, made it into Businessweek.com's 2011 Best Young Tech Entrepreneurs ranking.

Inspired by the high-profile sales of other financial-services startups in recent years—Aaron Patzer, a 2008 Young Tech Entrepreneurs nominee, won big when Intuit bought his accounts-management site Mint.com in 2009 for $170 million—these new sites and their peers are jockeying to get Americans in different demographics to take advantage of a greater variety of financial services. Consumers have grown eager to do a better job at managing their money while the economy rebounds from the worst recession since the Great Depression.

"The time is right," says Theresia Gouw Ranzetta, a partner at venture firm Accel Partners. "All the trends are there. There's a lot of money to be made." Accel is an investor in LearnVest, as well as in Check24, a comparison-shopping site for financial products, and Wonga, an online money lender.

"The Next Wave Is Personalization"

Today, many consumers check only account balances online. Seeing an opportunity to tap new markets, these entrepreneurs want to attract potential customers to investment, savings, and budgeting services that fit their individual financial situations and needs, says Richard Crone, who heads financial industry researcher Crone Consulting. "The next wave is personalization," Crone says.

A lot of money is at stake: U.S. retirement assets alone totaled $17.5 trillion at the end of 2010, according to the Investment Company Institute, a U.S. trade association. Retirement savings accounted for 37% of all household financial assets, according to ICI. In April 2011, 54 percent of Americans said they invested in stocks, stock mutual funds, or stocks in their 401(k) or IRA accounts, according to a Gallup survey of 1,077 adults.

LearnVest aims to take advantage of the fact that women are earning more and making more financial decisions. The site is tailored to women ranging in age from 20 to 50 and seeking help in figuring out how to cut costs, create budgets, and invest for retirement. The site offers online classes for a fee, as well as paid access to financial planners.

Consumers Want More Advice Now

LearnVest won't disclose its visitor numbers, but the company's user base is growing at 20 percent, month-to-month, Chief Executive Officer Alexa von Tobel says. Amid economic recession, Von Tobel, 27, took a leave of absence in 2008 from Harvard Business School to build the site. With many people losing jobs, homes, and investments, she suspected more consumers would be looking for financial advice. "Now is the best time, when people are really scared and in trouble, to create such a resource," von Tobel says.

Many sites are pursuing consumers with less wealth than those who have traditionally sought investment advice. Wealthfront, for instance, aims to serve people who have more than $10,000 to invest. Wealthfront users have already invested more than $200 million through the site, which offers access to more than 40 money managers chosen from a pool of more than 400 for their returns, strategies, and track records, Carroll says. The Palo Alto (Calif.)-based site takes a cut of the money managers' fees. "I wanted to bring investment management into the 21st century," Carroll says.

Established financial companies are fighting back by rolling out new services: In March 2011, ETrade launched an online investment community that lets investors connect with each other. "We believe in access to as many services as investors can get their hands on," says Susan Hickey, head of corporate communications at ETrade.

Even as larger companies compete directly with them, the new sites could still find success because so many opportunities are presented by the needs of divergent groups, says Kathleen Hagerty, a professor at Northwestern University's Kellogg School of Management. "Finance literacy is pretty variable," she says. "You can imagine chopping the groups up and giving advice for different demographics."

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